African transparency reforms are working – but there’s more to do

Africa loses $89bn a year to illicit financial flows such as tax evasion, corruption and theft, according to the UN: significantly more than the $54bn a year the continent receives in foreign aid. Stemming these losses is vital to tackling poverty and promoting sustainable growth on the continent.

Many African governments are making rapid progress to reduce these losses. In the last decade some 30 of the 54 countries in Africa introduced new company transparency rules, designed to prevent corrupt actors – whether from Africa or elsewhere in the world – from being able to hide ill-gotten money. A further 11 have announced plans to do so. In October African governments met in the Seychelles for an inaugural meeting to discuss the progress being made.

Beneficial ownership

Anecdotally, we know these new reforms are already beginning to have an impact. Nigeria – where I was born and raised – was one of the first countries globally to introduce a public register of the real – or “beneficial” – owners of companies.

Over the last few years, the Nigerian government has used the data to help claim over $150m from the country’s former oil minister Diezani Alison-Madueke. It is working with investigative agencies from other countries to recover funds that, it has said in court, were stashed using opaque “shell” companies that she used to try to hide her ownership.

Staff at Nigeria’s mining agency have also used company ownership data to identify mining company owners who were avoiding debt that they owed on their annual mining licence fees – by abandoning old companies and creating new ones. This resulted in the mining agency more than doubling its revenues in two years.

In Ghana, civil society group Northern Patriots in Research and Advocacy (NORPRA) used the country’s register of beneficial ownership to investigate the Australian company directors of a mine operating in Ghana. NORPRA linked some of the directors to individuals convicted of fraud and market manipulation. Following this, and licence irregularities, Ghana’s Minerals Commission refused to renew the company’s mining licence, so the owners had to stop operating.

Yet despite the numerous successes, there is still more to do to make the reforms even more impactful. On 9 October, 13 African governments and over 10 international and intergovernmental institutions, such as the World Bank and African Union, met in the Seychelles for the inaugural African Beneficial Ownership Transparency (AfBOT) Network meeting. They examined the impact that company ownership transparency reforms across the continent are having, challenges governments face administering them, and the next steps needed.

A first key theme that emerged is that more political will is needed – both within Africa and beyond. While many of the key global economies already have live beneficial ownership registers some, such as China, Russia, Australia, Saudi Arabia and Switzerland do not yet. Neither do many countries with lower levels of transparency, often known as “tax havens”.

A global problem

Illicit finance is a global problem. Corrupt politicians, businesses and gangs seek to move their money anonymously from country to country, including via tax havens. As long as there continue to be many jurisdictions lagging on transparency, there remain weak links in the system. While individual African countries setting up registers can and does help them reclaim stolen money and unpaid tax, the more countries that implement reforms globally, the more effective they will be.

Secondly, more resources and technical know-how are needed to help African countries implement registers, including support from donor governments. Government agencies need to monitor and verify information that companies are submitting.  This takes time, resources and expertise, especially since ownership structures can be complex and cover multiple countries, each of which may have different legal definitions and procedures for defining who the real owners of a company are.

Some high-income countries already use their foreign aid budgets to support African countries to implement these reforms.

The UK’s Foreign, Commonwealth and Development Office provides assistance to a number of African governments and also helped convene the AfBOT meeting, in collaboration with the African Development Bank and supported by Open Ownership, the organisation I work for.

The World Bank also provides assistance and incentives to countries. For example it is making $6.5m of a $80m finance package for the government of Malawi conditional on the country being able to demonstrate results from the successful implementation of beneficial ownership reforms. Other donor governments and international institutions should also step up their support.

Finally, international standards for beneficial ownership transparency are largely set by high-income countries – through a body called the Financial Action Task Force (FATF).

The FATF rules focus quite narrowly on tackling money laundering, and can sometimes fall short of what is needed to drive broader impact. Africa needs to build its own approach that serves its needs, going beyond the FATF rules at times to ensure a broad set of actors have timely access to well-structured beneficial ownership information – including the private sector, civil society and journalists.

Making data public

For instance Zambia went further than the FATF rules by setting up a register that isn’t just available to tax authorities, but is accessible to all. Zambia is now seeing companies and organisations use the data, with positive impacts on the business environment.

For example, a staff member at an international mining equipment manufacturer operating in Zambia reported using the register on a daily basis to look for flags against potential customers – and denying quotes to other businesses when there was a risk of corruption or of shell companies being used. Journalists and civil society can also use the data to investigate potential wrongdoing.

Across the continent, African governments are making rapid strides to increase financial transparency – which is helping to tackle losses from illicit finance and create a more trustworthy and attractive environment for businesses and investors.

With continued leadership from African politicians and increased action from high-income countries, the reforms already underway can both help boost economic growth and restore trust in politics across the continent.